Worst week since March puts fund man­agers in tight spot

S&P 500 IN­DEX SANK 4.6% IN THE LAT­EST WEEK, THE BIG­GEST DE­CLINE SINCE MARCH

After six weeks of stom­ach-churn­ing swings, a cry’s gone up from stock pick­ers: Make it stop. For the group that be­moaned last year’s one-way mar­ket as im­pos­si­ble to trade, it’s no small irony. Life’s only got­ten harder since Oc­to­ber as the S&P 500 lurches from rally to rout at an alarm­ing rate. So with just three weeks left in the year, many ac­tive man­agers are look­ing to make up lost ground and say they’d wel­come a re­turn of that his­tor­i­cal calm.

“Peo­ple are feel­ing a lit­tle de­mor­alised right now,” said Tony Dwyer, a strate­gist with Canac­cord Ge­nu­ity. “If you have a bet­ter close to the year, some of the pain that they’re feel­ing now will go away ob­vi­ously. It’s been a re­ally chal­leng­ing year.”

That’s be­cause no strat­egy seems to work. The S&P 500 In­dex sank 4.6 per cent in the lat­est week, the big­gest de­cline since March. In the past three weeks, US stocks have al­ter­nated be­tween gains and losses of at least 3 per cent. Not since the height of the 2008 fi­nan­cial cri­sis have in­vestors been buf­feted by that kind of volatil­ity.

And the swings aren’t con­fined to weekly moves. Take Thurs­day, when the S&P 500 plunged as much as 2.9 per cent be­fore par­ing losses to end the ses­sion down less than 0.2 per cent. Early gains on Fri­day evap­o­rated into yet an­other 2 per cent rout. The rea­sons for the vi­o­lent swings are nu­mer­ous but boil down to con­cern that ris­ing in­ter­est rates and the on­go­ing ■ trade war will throt­tle global growth and cor­po­rate prof­its.

The whip­saw is adding to stress among fund man­agers, who have seen their year-to­date out­per­for­mance com­pletely wiped out since Oc­to­ber. Through Wed­nes­day, the group trailed the mar­ket by 84 ba­sis points in 2018, a re­ver­sal from 2 per­cent­age points in front ear­lier in the year.

Stock re­ver­sals

Val­u­a­tions have fallen to lev­els last seen in 2016, as prices slumped while cor­po­rate prof­its kept grow­ing. Prof­its are fore­cast to grow 9 per cent next year as of now.

“It’s go­ing to come down to the out­come in trade ne­go­ti­a­tions in fu­ture months, to re­ally un­der­stand if this de­fen­sive bias is some­thing that will per­sist or if we will get an op­por­tu­nity to dip our toes back into some his­tor­i­cally cheap mar­kets,” said An­drea DiCenso, vice pres­i­dent and co-port­fo­lio man­ager at Loomis Sayles.

It de­cid­edly is in no one’s favour. Fri­day brought an­other round of head-spin­ning re­ver­sals. Stocks erased overnight losses to rise at the open on In the past three weeks, US stocks al­ter­nated be­tween gains and losses of at least 3 per cent. Not since the 2008 cri­sis have in­vestors been buf­feted by such volatil­ity. spec­u­la­tion the lat­est hir­ing data will give cover to a dovish Fed. Fresh con­cern that the Trump ad­min­is­tra­tion won’t ease trade ten­sions sent the S&P 500 ca­reen­ing as much as 2.7 per cent as key tech­ni­cal lev­els buck­led.

Last week’s sell-off is bad news for hedge funds. Their gross lever­age, a mea­sure of the in­dus­try’s risk ap­petite, climbed 2.5 per­cent­age points to 234.5 per cent as of Novem­ber 29. The in­dus­try is head­ing for its worst year since 2011 as the S&P 500 suf­fered two 10 per cent corrections.

Plunge in S&P 500 on De­cem­ber 6

Hedge funds’ gross lever­age on Nov 29

Bloomberg

Traders at the New York Stock Ex­change on Fri­day. US stocks re­sumed their de­cline Fri­day as the Trump ad­min­is­tra­tion pressed its trade war with China.